CVS Closing Dozens of Pharmacies Inside Target

[ClownLoach]

I can't believe that there wouldn't be some sort of clause to allow Target to take back control of any pharmacies CVS closed, either by forcing them to stay open, allowing them to re-lease to a third party, or just cancel the lease altogether and recycle it as store space.

The more I think about this, the more sure I am that there would be some sort of abandonment of all rights at any location CVS chose to depart. The only circumstances under which I could see CVS maintaining control would be if there was a lease and they were to continue to pay rent, and I don't think they are paying anything. Furthermore, Target would be nuts to have signed leases that don't require continuous operation...

As mentioned before I don't recall any discussion of CVS entering lease agreements or rents; later I am going to dig through their old earnings reports to see if there is any change in rental expense after they took control of the Target pharmacies so we have a definitive answer. They may not verbalize it in their press releases but the public financials will speak to what is going on. I think Target is just giving them the space free for the traffic and goodwill it brings to the brand.

If there is such a deal in which CVS can maintain full rights to dead space inside Target stores in perpetuity, then it would be because of very poor decision making by the CEO and General Counsel. In my opinion would be such a massive lapse in judgment that investors would demand their dismissal as "the last straw" after all the other issues the last few years. Although he's made some bad decisions I don't think Brian Cornell is that dumb... Worse case scenario it could be litigated in court where I think Target would be able to get a settlement to end the agreement with CVS but I could see Target having to write a check with many zeroes on it to buy back their rights.

[veteran+]

I agree!

Target would never agree to a space within their store to sit vacant.

[babs]

I agree!

Target would never agree to a space within their store to sit vacant.

So what do they do with the space? In most stores, it's not a huge amount of square feet. Just wall it off, add a door, and use it for stock room space? Make it the Ulta space?

[Alpha8472]

An Optical center would be a good use. Optical is very different than a pharmacy. With eyeglasses and contact lenses you make a profit. Many people pay out of pocket and do not have money losing insurance.

Walmart is taking back their optical centers from an outside company. They are kicking them out and taking back a profitable business.

However, the Optical does not have a person to give free medical advice on all topics. A pharmacist can give advice and recommend over the counter remedies that are sold in the store. A pharmacist drives sales in the health and beauty areas.

Target Optical is run by an outside company. However, profit would be greater if they ran it themselves.

[norcalriteaidclerk]

In Sacramento at least optical departments inside Target are rare,but Fulton(former gemco) actually has one.

[storewanderer]

Target Optical has 560 locations. I sure haven't seen many.
https://www.essilorluxottica.com/en/new ... t-optical/

[HCal]

The more I think about this, the more sure I am that there would be some sort of abandonment of all rights at any location CVS chose to depart. The only circumstances under which I could see CVS maintaining control would be if there was a lease and they were to continue to pay rent, and I don't think they are paying anything. Furthermore, Target would be nuts to have signed leases that don't require continuous operation...

As mentioned before I don't recall any discussion of CVS entering lease agreements or rents; later I am going to dig through their old earnings reports to see if there is any change in rental expense after they took control of the Target pharmacies so we have a definitive answer. They may not verbalize it in their press releases but the public financials will speak to what is going on. I think Target is just giving them the space free for the traffic and goodwill it brings to the brand.

If there is such a deal in which CVS can maintain full rights to dead space inside Target stores in perpetuity, then it would be because of very poor decision making by the CEO and General Counsel. In my opinion would be such a massive lapse in judgment that investors would demand their dismissal as "the last straw" after all the other issues the last few years. Although he's made some bad decisions I don't think Brian Cornell is that dumb... Worse case scenario it could be litigated in court where I think Target would be able to get a settlement to end the agreement with CVS but I could see Target having to write a check with many zeroes on it to buy back their rights.

Per news reports at the time, CVS is paying Target $20-25 million a year in rent. usatoday.com/story/money/2015/06/15/cvs-health-target-pharmacy-acquisition/71239452/

Here is the operating agreement: https://www.sec.gov/Archives/edgar/data ... tx10kk.htm

There are provisions for adding pharmacies to new Target stores or those that lack a pharmacy, and for closing Target stores. But oddly, it doesn't say anything about CVS closing a pharmacy in a non-closing Target, unless I missed it somewhere.

[storewanderer]

Well, the agreement seems to state as long as the agreement is active, Target cannot operate any pharmacies. It also says Target cannot sublease any space to any other pharmacies. I am not clear if that is at ALL stores or only stores with CVS inside. I wonder how that worked in ND, I guess just no pharmacy at all.

I am very surprised the agreement does not address what happens if CVS elects to close a pharmacy. The agreement has pretty heavy detail on what happens if Target closes a store.

[babs]

At Super Targets, I figure they would just dismantle the pharmacy structure since I've always seen them freestanding. In regular Target's where they are generally up in the front wall, I wonder if the best use is as a staging area for online orders. Just need to add an outside door to access the parking lot.

[veteran+]

I agree!

Target would never agree to a space within their store to sit vacant.

So what do they do with the space? In most stores, it's not a huge amount of square feet. Just wall it off, add a door, and use it for stock room space? Make it the Ulta space?

I think they would find a productive use of the space, and some of the suggestions here are pretty good.

I hope they eventually start the process of bringing back Target Pharmacy and kick CVS to the curb.